Few questions you need to ask yourself before your first step in stock market
People think about investing or trading in stock market because they think it's easy to and the returns are better than another business. I heard many people saying that stock market for those who are lazy, many people say that stock market is all about luck, others say it's impossible to make money in stock market. Personally I have complete different view about stock market. In this tutorial, today I'm going to discuss about it. But let me clarify my intention of this article is neither to encourage you nor discourage you about investing in stock market. I just wanted to show the real picture as best of my knowledge.
If you are reading this tutorial, then it means you have given some thoughts about investing your time and money in stock market. There are two types of people you can find who are investing their money in stocks, they are Investor and Trader.
Investor: An investor is a person who invests his/her money, on certain stocks for a longer period of time. For an example Mr. A has invested in XYZ stock 2 years ago and he does not wish to sell those shares for another 3 years or more. In this case Mr. A would be called an investor. He does not follow his stocks or financial affairs daily, instead he follows them every week. Due to longer duration, time investment requirements are moderately low for investors, in compare to traders. Therefore the profit/loss probabilities are also lesser in compare to a trader.
Trader: A trader is a person who invest his/her money on certain, stocks for short span of time. For an example Ms. B bought shares MNQ company today and she would sell the shares before the day end, no matter the outcome is profit or loss. In this case Ms. B would be called a trader. Since Ms. B buys and sells stocks everyday she requires to be updated with every political and economical affairs regularly. Due to shorter duration and daily transactions a trader needs to be updated daily with current corporate, economical and government affairs. Therefore the profit/loss probabilities are also higher for a trader.
These were two basic examples of investor and trader, practically it gets more complex, we will get to know in next tutorials. Stock market could be a very challenging or easy way to make money, depending upon your skills. I have known people who never go to work, their only profession is trading or investing and they make handsome profit out of it. Stock market is not about luck. It's about calculation, study, analysis and knowledge. If someone can do these completely, he or she can defiantly make money out of stock market regularly.
But first of all you need to ask yourself a few questions, before you decide about trading or investing in stocks, bonds or mutual fund etc. Those are:
Do you have sufficient time?
Can you provide yourself enough time to learn about stock market? Learning about stock market does not mean finding the names of reputed/ trending companies, and throwing your money on them. No matter you want to be an investor or a trader, you have to spend plenty of time to acquire enough knowledge, to understand and know what is happening, why it's happening and what could be the probable impact of that current events, on stocks and stock market. If you are working somewhere and thinking about doing little bit investment, you can but you have to spend enough time after your work.
And if you are thinking about working and trading together then I will say, that is not a good idea unless your work place or job related to stock market, such as brokering farm. Truly trading is not peace of cake and it's very tough and risky. If you want to be a trader, then you need to spend lot of time doing research, reading news at least four hours a day.
Do you have enough patience?
Patience, this is the second and very important part, if you want to invest or trade in stock market. If you are thinking about investing, can you patiently wait for five to ten years or fifteen years? Beside waiting, can you spend at least two days every week, checking and reading news about stock market for these five to fifteen years? Imagine you some bought shares at $100 and one day after you bought the stocks, you get back from work and find out that the stock price went down to $70 or $50. In this case you two choices; first you can sell those stocks next thing in morning, no matter what is the current prize and in this case you have to face huge loss, which no one would like. And second you have to hold the stock for more five to ten years (depending on stock's condition) in this case you can get good profit. Will you be willing to do that?
And if you are up to being a trader then can you patiently wait for the right windows of opportunity? It might be one day or one week; Sometimes you might not get the right time or chance to buy or sell, but if you loose your patience then no one can save you from massive loss.
Do you have willingness to learn?
Do you think you don't know everything? Do you think that you are eager to learn new things? No matter you are from commerce background or not, you still need to learn lot of things in daily basis, because stock market is not static, it's dynamic and ever changing. The day you think you have learned everything about stock market from that day you'll find the way to lose money.
Do you have enough self-confidence?
I think this is the most important thing you need to have no matter you want to be an investor or trader. Do you have enough confidence in yourself? Most of the confidence come from study, stock analysis and experience, but still you have to trust yourself, your instinct and your decision. Can you take a decision in a split second?
Ability to take risk and face loss?
The worse nightmare of a trader or investor is "LOSS". Are you capable of taking risk? Are you capable of facing loss and still stay calm and keep on calculating how to recover your loss? I can guarantee you no regular trader or investor could tell you that, they have never taken risk or lost their money. If anyone tells, then either that person is lying or the person never trade or invest regularly, in fact every established trader and investors have faced and will continue to face loss some point of time. Most of the people can not take the pressure of loss and risk. Those who can only they survive and make profit in the stock market.
If any of the above question's answer is no, then please do not consider yourself suited for investing. And if all the answer is yes, then you can be a trader or investor and ready for the first step in the stock market, but still you have to learn many things in daily basis. First of all you need to know Basic Terms of Stock Market, Basic Terms of Investment and Trading, Basic FAQs for the beginners in stock market, Few preliminary basic terms of Trading and Basic homework for beginners for stock market. Then you need to acquire advance knowledge in How to read Candlestick Chart without any complication, How to calculate support and resistance level, How to read financial report or Balance-sheet, When Why and How stock price changes, and Few things need to care about while trading.